For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'
So if you're like me, you might be more interested in profitable, growing companies, like Kemper (NYSE:KMPR). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.
Kemper's Improving Profits
Over the last three years, Kemper has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Kemper's EPS shot from US$3.37 to US$5.75, over the last year. You don't see 70% year-on-year growth like that, very often. That could be a sign that the business has reached a true inflection point.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that, last year, Kemper's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. While we note Kemper's EBIT margins were flat over the last year, revenue grew by a solid 68% to US$4.7b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Kemper's forecast profits?
Are Kemper Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$5.0b company like Kemper. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$207m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
Does Kemper Deserve A Spot On Your Watchlist?
Kemper's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So to my mind Kemper is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Of course, just because Kemper is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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